Master Grocers Australia Ltd - MGA Independent Retailers & Timber Merchants Australia Issues Paper Review of Australian Payments System - Treasury

Master Grocers
        Australia Ltd
            Trading as:
     MGA Independent Retailers
                  &
     Timber Merchants Australia

            Issues Paper
Review of Australian Payments System

            Submission to
    Review Chair – Mr Scott Farrell
         Treasury of Australia
         16th December 2020

Submission by Master Grocers Australia & Timber
Merchants Australia (MGA TMA) to Treasury in
respect of the Review of the Australian Payments
System

Introduction
MGA TMA is making this submission in respect to the Review of the Regulatory
architecture of Australia’s Payment System in the context of the proposed consolidation
of the Australian Payments Platforms (Eftpos, Bpay & NPP) into a single entity and its
effect on sustainable robust competition within the merchant payment system to deliver
economical payment choices for consumers and merchants, whether it be credit or debit
cards. MGA TMA believes that consumer and merchant payment choice must be
optimized to drive an efficient, productive, and competitive payment system in Australia,
mobile or otherwise.

About MGA Independent Retailers and Timber Merchants
Australia (MGA TMA).
MGA Independent Retailers and Timber Merchants Australia (MGA TMA) is a national
employer industry association representing independent grocery, liquor, timber and
hardware businesses, suppliers, processors, and wholesalers, in all States and Territories
of Australia.

Independently owned and operated Supermarkets, Liquor, Timber and Hardware
businesses play a major role in the retail industry and make a substantial contribution to
the communities in which they trade. Many MGA TMA members are small family
businesses, employing 25 or fewer staff.

In Australia there are 4,000 independently owned and branded and non-branded,
Supermarket, Liquor, Timber and Hardware businesses. There are 2,700 branded
independent grocery stores, trading under brand names such as: Drakes, Farmer Jacks,
FoodWorks, Foodland, Friendly Grocers, IGA, IGA Xpress, Supa IGA and SPAR, with a

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further approximately 1,300 independent supermarkets trading under their own local brand
names.

In addition, there are numerous independent liquor stores operating throughout Australia
and trading under names such as: Cellarbrations, The Bottle O, Duncans, and Local Liquor,
which are either single or multi-store owners.

Our members also are independent timber suppliers, processors, wholesalers and
hardware stores and trade under brand names including Mitre 10, Home Timber and
Hardware, Thrifty Link and True Value Hardware. These grocery, liquor, timber, and
hardware businesses collectively employ more than 120,000 staff and are comparatively
much smaller when compared with the large national supermarket and hardware chains of
Coles, Woolworths, and Bunnings, which combined represent approximately 80 per cent
of the retail supermarket and liquor industries and 65% of hardware industries.

These grocery, liquor, timber, and hardware businesses range in size from small, to
medium and large, and make a significant contribution to the retail industry, accounting for
approximately $16 billion in retail sales.

Executive Summary
In any competitive environment it is essential for there to be a fair, level playing field for all
participants regardless of their size or market penetration. Unfortunately, that has not been
available in Australia to independently owned grocery, liquor, timber, and hardware
businesses. The major chains, namely Coles, Woolworths, and Bunnings, have grown their
joint share of the national grocery market from about 34 per cent in 1975 to almost 80 per
cent and in some regions, their joint market share is closer to 90 per cent. It has been
difficult for smaller retailers to combat the power of the larger national chains which have
the ability to engage in practices that can severely impact the survival rates of independent
grocery, liquor, timber, and hardware businesses. MGA TMA submits that independent
grocery, liquor, timber, and hardware customers are entitled share in to the benefits of
genuine competition, which will deliver competitively priced grocery products, diversity in
retail offers and a supply chain that makes efficient use of Australia’s resources resulting
in a more equitable distribution of the available profits.

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MGATMA is concerned that the proposed consolidation of major domestic payments is
occurring without sufficient consultation or scrutiny with regards to its commercial
consequences or the real impact on the small businesses whose livelihoods are reliant
upon a secure, competitive, and low-cost domestic card payments system.

MGA TMA’s position
MGA TMA has grave concerns the creation of a single payments entity with greater scale
and resources will destroy competition in card related payments, handing the advantage to
the two large international card schemes. MGATMA considers this is the wrong approach
at the wrong time and the regulatory environment needs to protect against outcomes that
reduce competition and choice for merchants in terms of their preferred payments systems.

In terms of regulatory architecture, MGA TMA wishes to strongly endorse the maximization
of a strong and competitive payment system that will allow merchant and consumer choice
and drive independent retailer transaction cost efficiencies, rather than restricting these
efficiencies to the largest dominant grocery retailers.

It is vitally important for MGA TMA members, family and private businesses, that any
proposed regulatory model and any proposal to consolidate Australia’s payments
platforms:

•      maintains and promotes least cost routing (LCR) at point-of-sale and extends it to
the online environment with the major banks required to ensure that all Australian retailers
and businesses can access LCR, to reduce the high cost to transact, given the increase in
cashless payments.

•      does not result in any loss of domestic competition to the big international card
companies.

•      creates a strong decision-making voice for family and private businesses and as
such small businesses must have a seat at the table in all relevant regulator and industry
advisory bodies.

•      does not relinquish control over future pricing and investments to the major banks.

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Reliance on card-based payments in independent supermarket, liquor, timber and
hardware sectors, particularly debit cards, is escalating at an exponential rate. In the last
12 months, our sector has experienced:

•        A total of $16 billion in revenue annually.

•        An estimated 90% were card transactions pre Covid 19 growing to 95% in recent
months as a ‘No cash’ policy has become more common.

•        $14.4 billion via card transactions – pre Covid (based on 90% customer use in
store)

•        Approximately 450 million card transactions completed each year.

•        With approximately $74.25 million in annual merchant fees, via the Supermarket,
Liquor, Timber and Hardware sector.

Preserving consumer and merchant choice
The regulatory architecture should formally put the interests of merchants and consumers
front and centre in terms of payments policy, legislation, regulator decisions and industry
self-regulation. The legislative and regulatory regimes and the regulators that are charged
with administering them should be driven by core regulatory principles that will deliver the
best payments outcomes for merchants (MGA TMA Independent business owners and
operators) and consumers, in terms of minimising merchant payment fees and delivering
enhanced functionality.

These core principles should focus on competition, innovation and investment, choice,
transparency, and timely and effective action to prevent and stop behaviour that is
contrary to the interests of merchants as end users.

Competition should be actively encouraged at all levels of the payments system:
including competition through the maintenance of multiple payments platforms, domestic
and international card schemes.

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As end users who pay the merchant payment transaction costs at point of sale,
merchants (MGA TMA Independent business owners and operators) should have the
highest priority in choosing their preferred payments scheme to reduce their transaction
costs and access the functionality that is best suited to their businesses.

To enable merchant choice or least cost routing, point of sale and digital payments
systems should accept dual network debit cards and MGA TMA members should be able
to rout transactions through the lowest cost scheme as a matter of course.

Considerations for the regulatory architecture
The regulatory architecture should ensure that merchants have full transparency of their
payment costs, with pricing information provided in a way that is understandable and
enables merchants to make informed decisions about the choices available to them. This
contrasts with the current complex and opaque disclosure of transaction costs, which
makes it exceedingly difficult for busy small business operators to make valid
comparisons between different offers in the market.

This regulatory system should actively encourage regulators to respond rapidly and
decisively, in terms of proactively enabling MGA TMA members to have access to new
digital payments solutions that would reduce merchant transaction costs or provide small
businesses with access to enhancements in digital payments functionality.

The regulatory architecture should ensure there is a level playing field between large and
small businesses relating to payment choices, terms, and functionality. An example of
this not occurring is with LCR which has been made available to select larger businesses
but not to their small family and private business competitors. This cannot be allowed to
occur in the digital environment.

Regulatory decisions should be publicly announced and publicly available and be
explained in plain English so that small, medium, and large size businesses can
understand how they impact their businesses.

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There also needs to be greater clarity regarding the regulatory responsibilities of the
various regulators involved in the payments system, including which regulators, small
family and private businesses should go to in order to get regulatory action, as well as
ensuring that regulators are working together with a thorough understanding of payments
technologies.

Conclusion
MGA TMA supports a competitive consumer driven payment system that allows domestic
payment providers to effectively compete with the major credit card institutions. This will
allow more choice for consumers and will help to significantly reduce interchange and
other transaction costs for retailers, including by allowing consumers to take “cash out”,
which will further assist to reduce transaction costs, and alleviate the need to handle
excessive amounts of cash on premises, which is a constant security risk. A competitive
consumer driven payment system will allow the independent sector to preserve already
paper-thin margins and compete more effectively against the two major supermarket
chains and major hardware business, which are already able to minimize their transaction
and interchange costs, as they are issuers in their own right.

MGA TMA welcomes any initiative or regulations that enable a fair and level competitive
playing field that will foster a robust and healthy competitive payment system
environment.

MGA TMA would be pleased to discuss any aspect of this submission further.

Jos de Bruin
CEO MGA TMA
16th December 2020.

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